Today, EBAs ‘more threat than opportunity’

Once upon a time a dear and volatile friend interrupted his daily cycle through Surry Hills to throw an 80-year-old gentleman into and beyond a rose bush. He was then forced to deal with the intolerable pedestrian’s rather angry, 20-something son. Fisticuffs ensured but prompt victory did not dull the undignified fact that a successful kerbside dust-up had been triggered by an assault on a harmless, if careless, octogenarian.

The humiliation of victory burns still. Obviously this was the wrong fight to pick. But, knowing when to stand and fight and when to meekly walk is ever a difficult call. And understanding the delicate balance of risk and reward in conflict is a challenge increasingly faced by some of those Australian employers that have become the targets of union agitation and, in some cases, outright aggression.

Just ask Daniel Grollo or BHP metcoal’s Hubie van Dahlsen or Asciano’s John Mullen. Through 2012, each generated headlines and financial costs by embracing confrontation with unions resuscitated by the roll-back of the Fair Work Act. Each resisted entreaties for changed work practices and, in some cases, higher wages from either the hydra-headed CFMEU or the Maritime Union of Australia. Each emerged tarred and scarred but with substantive victory. And for each the complications of success continue to haunt their companies.

Grollo is suing the building union for losses generated by illegal strikes and blockades that stopped work at his sites across Melbourne through August and September last year. He is seeking $10.5 million in compensation for the union’s failure to obey court orders to stop organising industrial action. The union is being pursued by the industry regulator, Fair Work Building & Construction, for the campaign.

Meanwhile van Dahlsen and Mullen again find themselves at the cusp of confrontation, with BHP briefly locking out mining supervisors at two of its Illawarra mines while, to the north in the Hunter Valley, Mullen’s coal trains could be bought to a halt at any time by the train drivers’ union after negotiations collapsed late last week. More of this one later.

Doubtless the unions will receive and market these latest expressions of resistance as further evidence of an anti-union ideology embedded in the management of both protagonists. And that rhetoric may or may not be right. But, either way, it misses the point. By and large, business is a rational world where decisions are the product of review, discussion and accountable risk assessment. There is not a whole lot of knee-jerk or emotion in big business. Decisions to draw lines in the sands of industrial relations are routinely driven by high-level commercial analysis rather than free-market philosophy.

A recent paper by Herbert Smith Freehills partner Chris Gardner offered some well-informed insights into, and advice on, the rigours of risk assessment that precede an employer’s decision to “hold or fold" in the face of a union campaign.

Gardner says employers start from an informed appreciation of their own “bargaining equation" as cornerstone of a negotiation strategy. This requires an understanding of the short- and long-term costs of either consensus or conflict and an appreciation of both their own and the union’s “capitulation" points.

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A starting point in that appraisal is acknowledging how the “bargaining equation" has been changed by the recovery of pre-eminence under the law of the collective agreement. Gardner observes that what was a tool for reform through the 1990s has become “more a threat than an opportunity".

“Evaluating the bargaining equation is a key ingredient for any employer embarking on a collective bargaining process," Gardner writes. “This is particularly so for those who are faced with a challenging negotiating environment.

“In the 1990s, the move toward enterprise based bargaining away from centrally arbitrated awards provided . . . an opportunity to introduce workplace arrangement tailored for the particular workplace. For employers, enterprise bargaining was more an opportunity than a threat.

“Today, enterprise bargaining is more a threat than an opportunity. For most employers, the goal now is to reduce, as far as possible, the higher cost/lower control demanded of them in negotiations.

“At the same time, they are often stuck with an existing enterprise agreement with obligations which might have made commercial sense five or 10 years ago but not today. And unlike other commercial agreements, enterprise agreements can only be replaced (by another one through collective bargaining) or terminated by the Fair Work Commission (but only in rare circumstances)."

If we are reading Gardner correctly, his view seems to be that too many employers are choosing the path of least resistance because they underestimate the longer-term cost of the agreement they are being asked to embrace and because they overestimate the risk and cost of holding the line on management’s original aspiration for an agreement.

“Ultimately, the employer capitulates where it assesses that the cost of the union leverage (perceived or actual) outweighs the price of making the collective agreement. The great challenge for many an employer is to make an informed assessment in this regard. It is not uncommon for the short-term cost (leverage) to be overestimated and the long-term price (being the deal) underestimated."

Gardner’s assessment of a union’s motivation and the limitations of its leverage is interesting. Self-evidently, collective bargaining delivers unions with an obvious platform from which to market and grow membership and broader industrial relevance.

“Put another way," he writes, “if the union is not active in its representation of members at this time, when will it be? The enterprise bargaining process provides a union with the theatre to play its drive for member solidarity and growth. The process is a vehicle for relevance. So for a union, the process is often as important as the outcome."

From this strength can come weakness, according to Gardner. “What is the union’s capitulation point?" he asks. “Employees are loathe to lose pay as part of collective bargaining negotiations (which is an inevitable product of taking industrial action). Only the most hardened of workforces, often supported financially by the union, will be prepared to take industrial action beyond the short term. Pressure mounts on the union when they have been unable to deliver the deal that they have promised and employees have borne some “pain" as a result. For the union, the benefit of continuing the campaign (ie the process) is outweighed by the cost of doing so."

Oh, and what of the promised update on Asciano’s still fomenting conflict with the Hunter Valley coal train drivers employed by its subsidiary Pacific National Coal?

The Rail, Tram and Bus Union, perhaps understanding its own less overwhelming leverage in this stand-off, has so far not issued any strike notices in the wake of the collapse of talks last week.

The union told the media that the talks had ended with a PN Coal walkout after 15 minutes. But the RTBU told a different story to its membership (only 45 per cent of whom actually voted to arm their union with strike options).

The union said it opened last week’s meeting with an offer of 48 hours of “intense negotiations".

“The representatives of the company present said they could not make the decision about our offer of a 48 hour meeting but would need to speak to their managers. When they returned they stated they would not move from their January 11 offer of a slightly modified rejected agreement or consent arbitration. Your negotiating team could not agree and ended the meeting."

This week should bring us some clarity on whether or not China Inc remains shackled to its $830 million bid for
Discovery Metals
in the wake of last week’s publication of a confidence-sapping update on the Brisbane-based miner’s copper play in Botswana.

Pretty much ever since the alliance of Chinese private equity and a mainland sovereign wealth fund made their pitch for Discovery last year, the news from the Boseto project has proved cause for concern inside the bid team.

In the wake of the data in the latest target statement, Discovery’s share price lost 15 per cent to close at $1.29 on Friday. Which says only that the market reckons Cathay is fit to walk away here.

As things stand Cathay has until Friday to again extend its already thrice extended offer. The $1.70-a-share pitch is scheduled to close on February 6 but notifications of extensions or further waivers of conditions are required by week’s end. ­